COPENHEGEN: Frankfurt am main, december 06, 2017 Denmark’s Aaa stable credit profile is supported by its high and evenly distributed wealth levels, a resilient and diversified economy and robust public finances, Moody’s Investors Service said in a report today.
The annual update, “Government of Denmark Aaa stable, annual credit analysis”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.
“We expect that the Danish government will be able to maintain its
strong credit metrics over the coming years,” said Steffen Dyck, a Moody’s Vice President Senior Credit Officer and co author of the report. “The economic outlook is also set to improve gradually.”
Moody’s forecasts real GDP growth in Denmark of around 2% on average for 2017 and 2018, underpinned by domestic demand and a somewhat brighter outlook for economic growth in key trading partners. However, the combination of high and rising house prices and a very low interest rate environment could pose a risk to the growth outlook.The government’s sustained commitment to preserving strong public finances provides ample room to pursue expansionary fiscal policy to buffer the economy from any potential future shock, which could theoretically stem from a housing market correction, a sharp fall in global trade or fragmentation of the euro area.Denmark’s very high fiscal strength reflects a debt burden that compares favorably to similar-rated peers, very strong debt affordability metrics, and the authorities’ adherence to prudent structural fiscal balance rules.At an estimated 38% of GDP in 2017, general government debt is comparatively low, and since 1999 has never exceeded the Maastricht criteria of 60% of GDP. Moody’s expects Denmark’s gross general government debt to remain around these levels in the coming years.
Given its stable democracy, strong institutions, solid public finances and low refinancing risk, as well as its robust external account position, Moody’s assesses Denmark’s susceptibility to event risks as very low.Denmark’s credit challenges are mainly related to its financial sector due to its large size, and the reliance of mortgage credit institutions on wholesale funding. That said, Moody’s considers the risks to the sovereign to be comparatively low.While the stable outlook reflects Moody’s view that no pressure is anticipated on Denmark’s sovereign rating, it could come under pressure if the country’s very solid fiscal metrics showed a strong deterioration over several years, with no indication of reversal.As a very open economy Denmark would also be particularly hard hit if strongly protectionist policies were to be implemented in key export markets.
